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Austin TX Business Law Blog

Thursday, December 31, 2015

Business Entity Options for Texas Start-Ups

One of the first question a business must ask itself is “how should we organize?” Of course, the answer to this question varies significantly based on context, however the legal organization of one’s enterprise should be of preeminent concern from the get-go – and here are a few reasons why:

 

            #1: Liability is Everywhere: It’s true – just ask any one of the thousands of business facing expensive, time-consuming litigation each year. From the food industry to technology, there is no private sector business that is immune to liability, which means the savvy entrepreneur must take steps from Day 1 to protect against its pitfalls.

 

            #2: Exposure May be Reduced: There are a number of positive action steps a start-up can take to help limit exposure to liability – and many are inexpensive, no-brainer type options that can make the difference between booming and bankruptcy. More on that in a minute.

 

            #3: It’s an Investment: For the start-up, expenses like legal fees and organization consultations may seem beyond the budget. However, the costs of litigation far exceed that of a short legal consultation and incorporation package – so think of it as the company’s first official investment in its future.

 

When it comes to incorporating in Texas there are several options to consider when forming a business, including:

 

  • Private domestic corporation
  • Close corporation
  • Benefit corporation
  • Foreign corporation
  • Non-profit corporation
  • Limited liability company
  • Partnership
  • Professional associations & corporations (e.g., law, medicine, architecture)

 

Of course, each option carries distinct benefits which may be best-suited to the particular endeavors of a start-up entity – and an experienced Texas business attorney can help officers choose the best way to incorporate from the outset, keeping in mind the factors listed above.

 



Monday, December 21, 2015

Important Legal Concepts for the Entrepreneur

If you are considering or already have started your own business, you are probably overwhelmed by the legal implications of doing so.  While this is not an uncommon feeling as most business owners are not lawyers, you should still have basic knowledge of some of the salient legal issues facing business owners.  Here are three that we think are important.

Vicarious Liability

A small business owner can be liable for certain actions of his or her employees.  This is known as vicarious liability.  Generally, an employer is liable for the actions of an employee when the employee was acting within the scope of his or her employment.  While this seems pretty narrow, the courts have applied vicarious liability to a variety of situations. An entrepreneur should have a general liability insurance policy as a means of protection. 

Overtime Pay

As a business owner and employer you must also be aware of overtime laws.  Depending upon an employee's classification - either exempt or non-exempt, he or she might be due overtime for any work above and beyond forty hours per week. A small business owner needs to be up to date on the newest rules and regulations and be sure to classify employees correctly to avoid being penalized.

Intellectual Property

Entrepreneurs are often faced with intellectual property concerns. Intellectual property includes copyrights for works of art, patents for inventions and trademarks, which apply to brands.  Business owners can be accused of infringing someone else’s intellectual property or claim that someone else is using his or her IP  without authorization.  Intellectual property litigation is expensive and time consuming, and can have a negative effect on your business reputation.

 If you are considering starting a business or have already done so, an attorney can advise you on these and any other legal matters affecting your business.


Friday, November 27, 2015

Texas Joins List of States Allowing Companies to Opt Out of Workers' Compensation Plans

As a small business owner, am I required to maintain a workers’ compensation policy?


Historically, maintaining a workers’ compensation policy has been a mandatory line item on the checklist of business ownership. However, the growing trend within Texas – and nearby Oklahoma – is to allow business owners the option to opt out of the heavily regulated workers’ compensation system in favor of an alternative workplace injury protocol, which the employer is free to elect and implement in accordance with Texas workplace injury laws. In other words, so long as employees are covered in the event of accident, the opt-out plan will likely be enforceable.

However, as the costs to run a business continue to rise, employers have been seeking alternative workplace injury plans from one of the dozens of available options – and some employees are claiming that opt-out policies do not offer the same rate of coverage as a traditional workers’ compensation policy.

According to statistics, 1.5 million Texas workers are not laboring under the benefits of a traditional workers’ compensation policy, and are left in the largely unregulated realm of the private injury policy – and the differences are somewhat startling. For instance, one policy only covers workplace injury-related medical bills for 2 years, whereas workers’ compensation covers expenses for as long as necessary. Other plans were found to exclude issues including bacterial infections, “sickness and disease,” and chiropractic care. As well, certain private plans provided the option for managers to accompany workers to doctors’ appointments, as well as deny claims outright if not reported by the end of a shift.

Saving money on an opt-out policy can be great for the bottom line, provided the terms will ultimately hold up under Texas law. For help in this area, or to learn more about the legalities of small business ownership, consider working with a Texas business attorney today.

Saturday, November 7, 2015

Texas Lawsuits Pile Up Against Chesapeake Energy Corporation

What sort of backlash could a business face amid allegations of unfair price schemes?

When it comes to running a small business, choosing a price scheme that both drives the profit margin and attracts customers can be tricky. On the one hand, a business wants to be competitive in the market climate and, on the other, it needs to make a reasonable profit. There are a number of pitfalls to watch out for when attracting new customers -- such as charging new accounts, and deducting expenses accurately – just ask the recently embattled Chesapeake Energy Corporation.

In recent news, Chesapeake Energy has been named in over 400 lawsuits by disgruntled landowners accusing the conglomerate of cheating customers left and right – resulting in possible liability topping $1 billion. According to allegations, Chesapeake has presented thousands of landowners with lease agreements concerning over 25,000 tracts of land around Texas. Allegedly, these landowners – seemingly unfamiliar with Texas underground oil and gas laws – signed agreements with Chesapeake, not knowing the full measure of their entitlements to royalties on energy produced by the land.

More specifically, landowners assert that the company wrongfully miscalculated the price of gas. and charged landowners transport costs and expenses after the gas had already been transmitted.

These cases have been set for a series of trial dates docketed to begin in early 2016. Earlier this year, the company reached a settlement with several investors over similar claims, the details of which have not been publicly released.

One set of landowners claims they have not seen a royalty check in months. Though they say they never expected to “get rich” off the land, one landowner has stated, “I'm just hoping there will possibly be some back payments, and it will force Chesapeake to pay what is due,” -- a statement resoundingly familiar among the large group of plaintiffs seeking retribution from Chesapeake.


Friday, October 30, 2015

Mark Cuban Says Texas is a Startup-Friendly State

Is Texas a good place to start a business?

When we think of new business startups, our minds wander to places like New York City, Los Angeles and Silicon Valley. While these are great places for entrepreneurs to get started, are they any better than the state of Texas? Billionaire Mark Cuban doesn’t think so.

Cuban is a self-made billionaire who got started in the Lone Star State. Initially, he made his money by creating a streaming radio service, which was eventually bought by Yahoo! in 1999.  Now, he is a star of the hit TV show "Shark Tank." On this reality show, entrepreneurs have the opportunity to pitch their companies to wealthy investors who might financially back them if they like what they hear. Cuban has now invested in over 100 companies as a result of his spot on the show. 

Cuban was asked to speak at the North Texas Commission annual meeting. His topic was “how to think beyond the pitch.” During his presentation, he explained to the audience that he thinks Texas is one of the best states in which to start a company. While places like Silicon Valley are known for billion dollar buyouts, Texas is a great place to grow a business into an empire.  He also mentioned that he is trying to move some of the manufacturing he does in China back into the United States, specifically to Deep Ellum, Texas. Some of Cuban’s companies had booths at the meeting and were selling products or handing out samples and coupons to attendees.

According to Mark Cuban, if you are an entrepreneur in Texas, you can rest assured that you are in one of the best locations in the country. Nonetheless, nothing does more for your business than the representation of a knowledgeable and experienced business law attorney.


Saturday, October 10, 2015

Texas Ranked as Friendliest State for Small Businesses

What are the benefits of incorporating my small business in Texas versus other states?

When starting a business, one of the first steps to consider is where to incorporate? Legally speaking, deciding where to incorporate is one of the most pivotal decisions an entrepreneur can make, as the company will be subject, as it grows, to the laws of not only the state(s) where it does business, but its state of incorporation as well. Accordingly, businesses should take into consideration the various tax, civil, procedural, and dispute resolution laws in place when making this decision – all of which will undoubtedly impact at some point during the life of the business.

In a recent survey conducted on thousands of small business owners in Texas, the Lone Star State ranked first as the friendliest small business state in the U.S. The survey reviewed several areas, including: ease of starting a business, state employment regulations, taxes, zoning, and environmental laws. Receiving an “A” in nearly every category, small business owners touted the relative ease with which a start-up in Texas can obtain the necessary licensing  as well as benefit from the overall unobtrusiveness of state environmental and zoning regulations. Small businesses also reported favorable tax treatment, including paying virtually no income taxes in most cases.

If you operate a start-up business and are considering incorporating in Texas, working with a reputable business attorney is one of the first steps to take to ensure a seamless transition. While the steps to incorporate and gain legal recognition of your business entity may seem straightforward, working through the state and federal hiring and employment regulations may not be as easy. An experienced Texas business attorney can help ensure that your enterprise meets applicable zoning and permit laws. This is especially important if your business is in the industrial or manufacturing sector.

If you are in need of assistance with your start-up business, please contact the Kumar Law Firm in Austin, Texas today: 512-323-6060.


Thursday, September 24, 2015

September 1st Means Hundreds of New Laws Take Effect

Which new laws on the Texas Books will impact my small business this year?

Each year, the Texas legislatures considers, passes and enacts hundreds of new statutes. Some are relatively minor amendments; others involve sweeping reforms with major legal impact.

For the small business owner in Texas, the most recent enactments – which took effect September 1st – may have an impact depending on the nature of the business and the type of transactions it involves. The following offers a rundown of some of the most prominent legal changes. An experienced small business attorney will be able to best advise you as to more nuanced enactments impacting your particular industry:

  • Handgun Permits as ID: If your business requires proof of identification, customers may now show their handgun permit as a valid form of government-issued identification. This change does not apply to traffic stops or airport security, however.
  • Harassment of Interns: Sex-based discrimination and harassment laws have been extended to cover unpaid interns.
  • Nursing home compliance: If you are involved in the long-term care industry, new changes have limited to three the number of “serious health and safety violations” that may be assessed before your state license is revoked.
  • Shark fins: Engaged in the fishing industry? A new law has made it illegal to harvest certain species of shark solely for their fins. In addition, shark fins may not be sold, possessed, traded, bartered or possessed.
  • Liquor purchases: If an individual enters a liquor store close to the cut-off time, and is clearly browsing with the intent to make a purchase, the shop owner may transact the sale even if it takes place past the technical cut-off point.

Overall, approximately 700 new laws took effect on September 1st, some of which may be pertinent to your small business. If you would like to learn whether the new laws will result in any changes to your business structure, and to ensure your compliance with revised Texas laws, please contact one of our experienced business attorneys at The Kumar Law Firm today: 512.960.3808.


Monday, August 31, 2015

Congress Introduces Bill to Ban Non-Compete Clauses Against Low-Wage Workers

Can my employer prevent me from changing jobs to work with a competitor?

Non-compete clauses are an extremely common component to the hiring process, and are used to prevent employees from leaving one company to work at a competitor, presumably taking clientele along in the process. 

In general, a non-compete agreement is enforceable if it is reasonable in scope. In Texas, this means that the agreement must not cover an unreasonably large geographic area (i.e., the entire state of Texas) or last for an unreasonably lengthy amount of time (i.e., ten years). Reasonableness will depend on the nature of the industry, the type of work performed, and the employee’s factual ability to cause financial harm to the first employer. 

However, there is a point where a non-compete clause can go too far, and may actually cross the line into an unlawful restraint on trade. Moreover, as several members of Congress have pointed out, businesses have begun restraining low-wage workers with non-compete agreements as well, creating additional hardship for a population already facing financial struggles. 

In June, 2015, several U.S. Senators introduced the Mobility and Opportunity for Vulnerable Employees Act. This Act, if approved, would prevent employers from attempting to restrain former employees from working for competitors if the workers earn less than $15.00 per hour, less than $31,200 annually, or the minimum wage in the worker’s municipality. 

In the words of Senator Chris Murphy (D-Conn.), non-compete agreements hidden in low-wage worker contracts deliberately trap these workers in low-paying jobs – and that’s unacceptable….I worked hard on this bill because I believe that if you’re making less than $15 an hour, the government has a moral duty to stop companies from exploiting your hard work by preventing you from using your skills and experience to work your way up.”

Currently, a number of low-wage food service companies embed non-compete agreements in employment contracts, preventing counter-service workers from procuring a job at a competitor. 

If you have questions about non-compete agreements, or would like to discuss the proper way to implement this strategy into your hiring procedures, please contact the Kumar Law Firm, serving Austin, Texas and surrounding areas today at 512.960.3808.


Sunday, August 23, 2015

BBQ Bans & Other Legal Issues Facing Restaurant Entrepreneurs

What should we be considering as we plan to open a new restaurant in Texas?

Restaurant start-ups are a hot industry right now, and entrepreneurs are too often mired in the details of menu and décor to consider the legal ramifications of embarking on their new venture. Fortunately, The Kumar Law Firm can help organize and protect your team, whether you operate a food truck or a five-star rooftop restaurant.

The initial steps in creating a restaurant business are pre-planning and choosing a suitable, appropriately zoned location. Finding the perfect location depends on a number of factors, with some restaurants -- such as barbeque joints -- having additional hurdles to overcome. Earlier this year, for instance, the Austin City Council considered a proposal to regulate barbeque smoke known to waft into residential areas – apparently bothering nearby neighbors and causing a nuisance for other surrounding businesses. The council, however, ultimately voted 4-0 against the measure, while encouraging residents to make use of the city’s 311 service to launch complaints about “air pollution.”

Once beginning restaurant entrepreneurs have chosen an appropriate location, they must consider the various state and federal food safety regulations, which govern everything from food temperatures to proper cooking techniques. In addition, businesses must maintain a sizable insurance policy to cover liability stemming from foodborne illnesses. Such illnesses are not always preventable, even with the most careful preparation techniques.

Of course, hiring and maintaining employees also requires legal knowledge, particularly in regard to insurance, taxes, payroll, anti-discrimination policies, and other human resource issues wrapped up the opening of any business. An experienced start-up attorney can be invaluable in helping to draft contracts, defend against vendor/customer disputes, and offer general legal advice, not only during the first few years, but throughout the course of enterprise's operation.

If you are considering starting up a restaurant business in Austin or surrounding areas, please contact a business law attorney at The Kumar Law Firm at 512.960.3808 so that we can supply you with information about how to best protect your assets and ideas.

 


Friday, August 14, 2015

Start-Ups & Tech Businesses Fear Impact of New “Cloud Tax”

Is it true that some areas are beginning to “tax” the Internet? 

Believe it or not, a concept known as the “cloud tax” may be on the horizon, since the city of Chicago recently enacted a surcharge to tack on an additional nine percent fee to the cost of streaming videos via Netflix or Spotify. While the notion may seem far-fetched, web-based start-ups ought to be mindful of the developments in these laws, as Chicago lawmakers assert that the tax is actually not a new idea – just an expansion of current tax laws long since on the books. 

The “cloud tax” assesses the fee to any cloud-based services, and is considered a combination and expansion of both the Personal Property Lease Transaction Tax and the Amusement Tax. While the lawmakers do not seem to have any difficulty applying these taxes to streaming videos, both were historically enacted to generate revenue from the sale of tickets to concerts or sporting events – not individual viewership of movies or entertainment. 

Under the Chicago law, the cloud tax would apply to all streaming services, as well as cloud-based services including the Multiple Listing Services (MLS) utilized by realtors. 

The Chamber of Commerce has remarked that this approach is akin to “nickel and diming” businesses and consumers.  However, the move is calculated to bring in $12 million to the city. 

On the flip side, the city says that it intended to enact the tax in order to “bring companies using new technology in line with brick-and-mortar businesses. The city also promised exemptions for tech startups based on their revenue.”

The Texas Comptroller issued a ruling on Internet taxation in 2012, holding that certain highly-nuanced cloud-based transactions may be subject to the “statutory definition of taxable data processing services, telecommunications services and information services.” It remarked that “[a]ccording to the Comptroller, the virtual/cloud computing environment service is taxable as a data processing service. The definition of "data processing services" includes computerized data and information storage or manipulation as well as use of computer time for data processing. Again, the first 20 percent of the charge is exempt.”

If you are considering a tech start-up and would like to discuss the tax implications of this type of business in Texas, please contact the Austin business law attorneys at The Kumar Law Firm right away: (512) 960-3808. 

Monday, July 27, 2015

Texas Passes Bill Eliminating Double Taxation for Professional Employer Organizations

Did Texas enact any recent changes to its tax laws, particularly with regard to small businesses? 


As of July 1, 2014, House Bill 3150 became law thanks to the concerted lobbying efforts of small business advocates and businesses known as Professional Employer Organizations (PEO’s). The bill, which ultimately resulted in a slight increase in unemployment taxes statewide, worked to create an attractive tax incentive for small business contracting with PEO’s for purposes of outsourcing various human resources tasks. In sum, the bill would help alleviate double taxation of PEO partnerships, thereby allowing business the opportunity to reinvest these funds. 

How HB 3150 helps the PEO’s in Texas 

For many small businesses, it is easier and more cost effective to outsource an entire human resources department as opposed to hiring and employing such professionals in-house. Accordingly PEO businesses began to spring up and are organized to offer these services to businesses for a flat annual contract rate. However, under the old laws, PEO’s were actually facing somewhat of a double taxation rate, unlike any other small business in Texas. 

More specifically, when a company contracts with a PEO, the PEO then contracts with each employee for purposes of supplying unemployment benefits should the need arise. During the PEO’s tenure with the company, it is responsible for placing all unemployment taxes in trust until a point when a terminated employee needs the funds. Under the new laws, which become effective September 1, 2015, a PEO would receive a tax credit for any unemployment taxes paid to the employer prior to engaging with the PEO, thereby resulting in tax savings for the small business sector overall. 

In a statement by the National Association of Professional Employer Organizations, “[w]e thank Governor Abbott for his support of this bill, which will enable PEOs to continue to help small businesses in Texas grow and thrive while eliminating what was essentially a double tax on small business and maintaining the integrity of the UI trust fund at the same time.” 

Texas lawmaker Brandon Creighton similarly commented, stating “[t]his bill changes the law to ensure that these small employers in a PEO relationship are not faced with paying double tax if they make a change after Jan. 1….This bill is good for small employers in Texas, it’s good for all PEOs in Texas and it avoids double taxation.”

If you are a small business with questions about human resources or taxation issues, please contact the Austin, Texas business law attorneys at the Kumar Law Firm by calling (512)960-3808 today! 

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